Public Private Partnership, its Models and Applicability

Public Private Partnership (PPP) A strong and modern infrastructure is central to the progress and development of the economy and for providing basic services that people need in their everyday life. ICTs have become identifiable as the key enablers of socio-economic development and are also recognized as a critical tool in reducing poverty. PPP can be termed as a contract arrangement between public bodies and private consortium that synergizes the net effect and delivers results where public bodies may not have worked efficiently. PPP describes a range of possible relationships among public and private entities in the context of infrastructure and other services (ADB PPP Handbook). PPP may encompass the whole spectrum of approaches from private participation through the contracting out of services and revenue sharing partnership arrangement to pure non-recourse project finance, while sometime it may include only a narrow range of project type. The PPP has two important characteristics - an emphasis on service provision as well as investment by the private sector and secondly transference of risk from the Government to the private sector. The PPP model is very flexible and discernible in variety of forms. Although PPP has been utilized extensively in Energy, Telecom, Transport and Water & Sewerage we would be focusing on its effects in Telecom industry. PPP Models Categorized Turnkey Description The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector. A private operator, under contract, operates a publiclyowned asset for a specified term. Ownership of the asset remains with the public entity. A private operator, under contract, operates, maintain, and manage a publicly-owned asset for a specified term, while the ownership of the asset remains with the public entity. Service providers bid for the universal services fund that covers some part of the cost required to provision the universal service. Government offers subsidy to roll out networks and other required infrastructure for provisioning of universal services Under a concession, the private partner (Concessionaire) bears overall responsibility for the services. The fixed assets either remain the property of the public authority or revert to public ownership at the end of the concession period.

Operations, Maintenance and Management OMM: Operations, Maintenance & Management

Competitive Provision

Subsidy

Concessions

Leasing-type contracts Buy-build-operate (BBO) Lease-develop-operate (LDO) Wrap-around addition (WAA) Joint Ownership Model Build-operate-transfer (BOT) Build-own-operate-transfer (BOOT) Build-rent-own-transfer (BROT) Build-lease-operate-transfer (BLOT) Build-transfer-operate (BTO) Design-Build-Finance-Operate (DBFO) Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-managefinance (DCMF)

The private sector buys or leases an existing asset from the government, renovates, modernizes, and/or expands it, and then operates the asset, again with no obligation to transfer ownership back to the government. In the joint ownership model, the government and a privatesector partner team up to start a for-profit company The private sector designs and builds an asset, operates it, and then transfers it to the government when the operating contract ends, or at some other pre-specified time. The private partner may subsequently rent or lease the asset from the government.

The private sector designs, builds, owns, develops, operates and manages an asset with no obligation to transfer ownership to the government. These are variants of design-build-finance-operate (DBFO) schemes.

Alternative forms of PPP with the expected duration and distribution of risks and investments can be seen in this table. Operation & Ownership Investment Commercial Duration maintenance risk (years) Management support O&M Public and Private Private Public Public Public Public Public Public Public Public Public Public Semiprivate Public Public Public 1-2 3-5 8-15 20-30 20-30 20-30

Leasing Private Public Concession Private Public BDO Private Public BOT / BOO Private Public Source: Gurber (2003) and OECD Secretariat

Each form of PPP has specific prerequisites to enable its proper implementation. PPP model that transfers greater amount of risk to private sector would require a more sophisticated framework. Also the interests of the government may be in deploying concession while private party may not be interested if risk levels are high. The table below explains the prerequisites of different PPP options and consequent legal and regulatory reforms that may be necessary to make necessary investments viable and possible.

Option

Political Commitment

Cost Recovery Tariffs

Regulatory Framework

Information Base

Government Capacity for Contracting, Management and analysis

Service Contract Management Contract Lease

Low Moderate Moderate

Low Moderate High

Low Moderate High High High

Low Low High High High

Moderate Moderate High High High

Concession High High Build Operate High Variable Transfer and Variations Source: ADB PPP handbook, 2008

Public Private Partnerships: Industry Updates Public-private partnerships provide key to successful development of Middle East healthcare sector Public-private partnerships (PPPs) are being mobilized increasingly in the Middle East to deliver better health sector infrastructure and services, according to PwC's Health Research Institute. In a new report launched on the sidelines of the Arab Health in Dubai this week, PwC, the leading international professional services organization, suggests that PPPs are emerging as a model for financing and managing healthcare delivery. Developments in the Middle East show that this trend will continue to grow in the region. Middle East have concession model successfully.

Canada Alberta SuperNet www.albertasupernet.ca The Alberta SuperNet uses an open access model which creates a competitive environment for service providers who want to deliver ultrahighspeed services to their retail and business customers. Axia provides Real Broadband guaranteed connectivity to all service providers, leveling the playing field for both urban and rural customers in a geographic region. This innovative approach to network design and management equal access to Real Broadband connectivity challenges traditional telecommunications providers, who have focused on delivering network services to more densely populated areas where they have a large, concentrated customer base and more manageable construction costs. This model can be thought as Universal Service Fund so to speak as it has money being handed over to existing service providers to provide access to underserved communities.

The Eastern African Submarine Cable System (EASSy) www.eassy.org EASSy is a multi-country, multi-partner fiber-optic cable project that will connect 21 African countries to each other and the rest of the world. The partners will be a combination of publicly and privately owned entities. EASSy is set-up to operate as a non-profit making initiative and endeavours to bring about substantial bandwidth cost reductions to the countries where its members operate. The ownership structure of EASSy is a hybrid consortium of which one of the members is the West Indian Ocean Cable Company Limited (WIOCC). WIOCC is a specially created investment company owned by Djibouti Telecom (Djibouti), Dalkom (Somalia), Telkom Kenya (Kenya), Uganda Telecom (Uganda), Zanzibar Telecom (Tanzania), ONATEL (Burundi), UCOM (Burundi), Botswana Telecom (Botswana) and Telecommunicaces de Mocambique - TDM (Mozambique), Lesotho Telecommunications Authority (Lesotho) and Gilat Satcom Limited Nigeria. Bangalore One (B1) www.bangaloreone.gov.in Another Indian project, B1 is a BOT contract between the State of Karnataka and private consortium of CMS Computers Ltd. and Ram Informatics. The objective is to provide a one-stop shop via public center kiosks for all Government to Business (G2B) and Government to Citizen (G2C) services in the state. The Government personnel responsible for providing services prior to B1 were redeployed into the service of B1. The private operator is paid a fixed fee for each transaction carried out. UTI Bank is also providing financing by paying the salary of 200 kiosk employees. The bank makes up the costs out of the one-day float it gets to hold on the cash collected. Estonia Rural Connectivity Estonia has one of the highest degrees of connectivity in Europe as a result of the focus placed on the development of a core network infrastructure and provision of access to the general population. Through a BOO contract with the Estonian Telephone Company, the company helped to ensure connectivity in rural and scarcely populated areas in return for lucrative urban contracts. The government is actively extending connectivity throughout the nation. By 2002 Estonia had approximately 300 public Internet access points providing free email and Internet access. MSC Malaysia In 1996 the Government of Malaysia announced its plans to develop the Multimedia Super Corridor (now called MSC Malaysia). Supporting the mega-project was the Governments electronic governance policy, which sought to transform the relationship between the Government and its citizens according to new, indigenous (non-Western) models of development. As with its past infrastructure mega-projects, the Government of Malaysia relied heavily on partnerships with the private sector to develop and invest in the new MSC and to provide the infrastructure and operate the applications and services of the new e-Government program. The Multimedia Development Corporation (MDeC) oversees the development of MSC Malaysia. Initially a Government-owned corporation but now incorporated, MDeC markets the MSC globally and facilitates applications by multinational and local companies to re-locate to MSC Malaysia. This model can be thought of as BOOT model for realization of the mega project.

Smart Village is a technology park that was designed to remove obstacles to ICT firms investing in Egypts ICT sector. Within two years of its inauguration in 2005, the Smart Village hosts a growing number of IT companies including multinationals, local and regional enterprises, startups, training centres, the ITU Arab regional office, and the Ministry of Information and Communication Technology (MCIT). The project is a PPP between the MCIT and a private consortium. Under the partnership, the MCIT provided 300 acres of land (20% of the cost) and the private investors financed the remaining 80%. Hong Kong ESDlife is a bilingual portal in Hong Kong, developed and maintained through a Design-BuildOwn-Operate (DBOO) model that implemented the governments Electronic Service Delivery (ESD) Scheme. Under this contract the private operator, ESD Services Limited and HewlettPackard HK SAR Limited), is responsible for developing, financing, operating, and maintaining the portal in return for the Government paying transaction fees to the private operator after the transaction level has reached a pre-agreed volume Egypt Free Internet Egypt's Free Internet Project is an initiative by the Ministry of Communications and Information Technology in Egypt, to provide everyone nationwide with easy and affordable access to the Internet at the cost of a local call and with no additional subscription fees. Today, Internet users all across Egypt are only charged for the price of local phone calls associated with connecting to the Internet. The Free Internet Initiative is based on an offloading/revenue sharing model: ISPs are allowed to co-locate their access equipment at Telecom Egypt local exchanges. Thus customers' Internet calls are serviced at the closest local exchange and re-routed to the ISP data backbone, resulting in major offloading of Telecom Egypt PSTN network. In return for offloading, revenues from the Free Internet calls are shared between Telecom Egypt and the service providers. This concept is based on an Offloading / Revenue Sharing model. Another example of joint ownership model was used when the Egyptian government wanted to build an e-payment system, and for this purpose it formed a publicprivate partnership. Egypt government took a 60 percent stake in the new company and the two private partners had a combined 40 percent stake thus both the government and the private sector had a combined stake in the newly formed corporation.

India In India similar Universal Service Fund has been established to promote telecom growth. Here it is funded through Universal Access Levy and charged at 5% of the revenue of telecom service providers. To date, various PPP models have been tried in India, including public contracting; passive public investment (equity, debt, guarantee, grants); joint ventures; and long-term contractual agreements (BOT, BOOT, BOLT). Singapore Private sector derive revenue from providing information and transactions and revenue is shared between private sector and Government. The onemotoring site caters to transactional 6

services, Information services and Commercial services using DBFO model. ITE College West (Institute of Technical Education) is the First social infrastructure PPP project in Singapore where Gamon Capital would design, build, maintain and operate the education facility for a period of 27 years.

Middle East North Africa South Asia

8000

7000
6000
$ millions

5000

4000
3000 2000

1000
0

2004

2005

2006

2007

2008
Management contract

2009
Merchant

2010
Partial

Build, operate, and transfer

Build, own, and operate

Source: PPI, World Bank We see that partial divestiture projects and Merchant type Greenfield projects dominate the landscape in the above region -GCC countries are not covered in the above chart. Universal Services Obligation Worldwide Globally, about 120 governments have officially defined elements of telecom Universal Services in their respective markets. Out of these 120 countries, around 50 plus have implemented universal services schemes whereby operators can apply for subsidies to offer essential services, or intend to do so in the near future. Levies on operators are the main sources of funding, ranging from 0.04 percent of revenues in Estonia to 5 percent in Colombia and India, and 6 percent on certain services in Malaysia. Mobile telephony can lead to economic growth both directly and indirectly, however relying on technology alone to provide development solutions is an incomplete answer, and that governments have an essential role to play in the development process. The relationship between economic development and mobile communications is two-way process. A positive relationship has been found between telecommunications investment and economic growth while and that this impact was more significant for developing countries (Curwen and Whalley, 2011). Internet access brings with it a wide range of benefits and advantages for all communities. This is especially true for rural and remote areas as Internet brings access to resources that are even less likely to be available in these communities. Broadband has been proven to increase educational access, access 7

to medical professionals and access to e-marketplace. This helps creates many new opportunities for unserved and underserved areas residents (Peha, 2003).

Some of the most commonly used Universal Services Funding methods include the following Universal Service Fund (USF) widely used, with around 60 instances are under implementation worldwide, although around 25% of those in existence are available for funding the incumbent only. Most countries were not able to disburse more than quarter of funds collected. Intelecon goes on to suggest that no developing country has distributed more than 2% of the collected funds. Countries with USFs available to Other Licensed censed Operators include Australia, Bulgaria, Canada, Ecuador, Hungary, India, South Korea, Morocco, New Zealand, Pakistan, and Spain Internal Cross-Subsidies chiefly used by incumbents, but by some other licensed carriers as well, often in conjunction with direct subsidies or balancing USF payments from government Examples include Austria, China, Estonia, Japan, South Africa and the USA. Some countries e.g. Ireland, Liechtenstein, and Sierra Leone- use a Self-Financing model where Universal Service is financed by receipts from interconnection access payments Direct Subsidy in Botswana, the Czech Republic, Iran, Kuwait, Mexico, Nepal and Vietnam, the national government has directly funded the provision of Universal Service Competitive Provision adopted in Angola, India, Niger, Oman, and Sri Lanka amongst others. In Germany, operators bid competitively for meeting Universal Service Obligations but are expected to fund at least a measure of the resulting costs through internal cross-subsidy Universal Services Obligation in SAMENA Region 1. Pakistan, USF Established in 2006, USF spread the benefits of the telecom revolution to all corners of the country. The fund consists of contributions (1.5% of adjusted revenues) by the Telecom Operators with no Government funding involved. Four major areas currently being covered by USF includes 1. 2. 3. 4. Rural Telecom Program Broadband Program Optic fiber cable project Special Projects

Universal Service Fund (USF) has also launched special projects to establish Multi-purpose Community Telecenters and Telemedicine Networks all over the country. These projects aim at introducing and promoting e-services in the country especially where availability of PCs and computer literacy are the main issues. Universal Service Fund (USF) is also trying its bit to contribute in other fields. The Special project ICT for persons with disabilities involves providing ICT related equipment to institutions for special persons. Universal Service Fund (USF) is also encouraging its contractors to go for Alternative Energy Solutions like Solar so that at least a few hundred radio base stations start running with alternate sources of energy. 2. Qatar The State of Qatar has implemented the highest principles of globalization through a policy of liberalization and modernization. "There was pro-activity on the part of Qatar's government authorities to develop significant publicprivate partnerships in Qatar to protect the economy and its banking system from the consequences of the current global financial crisis. The Qatar Investment Authority last year offered to invest in new shares between 10%-20% of the capital of the main Qatari banks." (R Seetharaman, Group CEO of Doha Bank.) Some example of Qatari and international projects Villagio Shopping Mall (BOT). Some electricity generators owned by Qatar General Electricity and Water Corporation (Kahramaa) (BOO). Some Qatar local companies are currently contracting with local and international corporations in real estate and construction sectors (BOT). Malaysia 81 Philippines 78 The Republic of Czech 68

Item Egypt Number of projects 16 executed through private sector partnership Volume of private sector 6.207 partnership (USD billions)

37.845

31.533

16.822

Public Private partnership: Global Initiatives Australia 9

Over the past few years, Australia has been quite active in terms of strengthening its science and innovation system. Structural reforms across a broad front have contributed to this achievement, including science and innovation policy initiatives that have consolidated and broadened the basis for economic growth in the country, by accelerating the transition from a natural resource-based to a knowledge-based economy. A range of schemes have been introduced with the primary aim to encourage and facilitate publicprivate partnerships for innovation (PPP), which together represent about 9% of the total S&T budget. The report briefly described these PPP schemes in terms of their specific aim, mechanism and size. Building on this innovation strategy, the government developed a set of National Research Priorities in 2002: An Environmentally Sustainable Australia; Promoting and Maintaining Good Health; Frontier Technologies for Building and Transforming Australian Industries; and Safeguarding Australia. Australia has used both BOT and BOOT models successfully to establish PPP ventures. In order to increase the level of private sector research and to improve the linkages between the many actors of the innovation system, the Australian government has undertaken a range of policy measures since the 1980s, ranging from measures supporting the research undertaken in industry (e.g. competitive grants, R&D tax concession) and programs encouraging multinational firms to establish a research base in Australia, to measures aimed more directly at the establishment of contacts, interaction, collaboration and partnerships between public sector institution and the private sector. The latter received an increasing priority in the 1990s. Developments in Middle East, Africa and South Asia and SAMENA position In the last decade 12 countries of Middle East and South Africa had PPP investments of around US$54 billion the emphasis was on new green field projects. New telecom operators attracted US$26.5 billion investment. South Asia was dominated by India getting almost three quarters of regional investment with a total investment commitment of around US$189 billion (PPI, Worldbank). GCC countries are facing market saturation and falling ARPU which has led them to exploit mobile internet access proactively and also other alternative sources of revenue. Since most Gulf governments hold majority stakes in 10 out of the 15 mobile operators in the GCC region private competition has to be introduced to allow the sector to grow. PPP can help by allowing private sector to invest in provision of VAS and manage the entities either through BOT or concession to squeeze more revenue out of the saturating market where traditional streams of revenue are no longer growing. Vodafone Qatar was able to increase penetration by targeting lower income segment and further as the Telecom Special Report by Ford (2011) suggests more growth is possible. The onus is on governments to let in competition to fuel market growth otherwise ARPU will keep on falling.

10

8000 7000 6000

$ millions

MENA Countries

5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Energy Telecom Transport Water and sewerage

SAMENA can help in highlighting opportunities in GCC telecom and initiating dialogue with respective GCC operators on need for bringing in private partnership to increase competition and ARPU. Further in MENA countries telecom has been the most significant investment option so there is need for highlighting opportunities in countries like Syria, Lebanon, Iraq, Yemen, and even in Bangladesh and Sri Lanka of how private partnership can foster growth using existing USF funding and engage with governments for management/lease type contracts or concessionary funding to utilize the opportunities for growth.

Conclusion Information and communication technologies drive economic growth, the debate on universal access policies is shifting from access to basic voice services toward national broadband coverage. Developing an economy whose workforce is able to create, adopt and access technology requires policies that take advantage of market forces while maintaining technology neutrality to remain effective. Broadband has been in focus by many USFs what needs to be done to ensure that Broadband development in underserved and un-served areas can deliver an improvement in citizens quality of life. More than 50 countries have been listed by Hudson as having some sort of USF program, however most countries were not able to disburse more than quarter of funds collected policies need to be developed to ensure that designated development does ensure the charter of USF. State regulation of the telecom sector must be independent, effective, and transparent, in order to inspire investors confidence and ensure fair competition that will benefit consumers. 11

Sources: 1. http://www.usf.org.pk 2. www.lirneasia.net 3. Public-Private Partnership in Indian Infrastructure Development: Issues and Options by Lakshmanan, Reserve Bank of India Occasional Papers 4. PPP for research and innovation: An evaluation of Australian Experience, OECD Report, 2004 5. Towards a New Public Private Partnership Model PPP Model 6. Public Private Partnerships: Managing Opportunities and Risks 7. PPP ICT Case Studies 8. Public-private partnerships an international analysis 9. The European Internet Industry and Market 10. Public-private partnerships in Qatar lauded, Gulfbase 11. (2008), ADB PPP Handbook 12. PPI, Worldbank database 13. Peter Curwen, Jason Whalley, (2011) "The restructuring of African mobile telecommunications provision and the prospects for economic development", info, Vol. 13 Iss: 2, pp.53 71 14. John M. Peha, (2007) Bringing Broadband to Unserved Communities, Hamilton Project Discussion Paper 15. Neil Ford, (2011) Changing the focus of Middle Eastern telecoms, The Middle East 16. Sumit K. Majumdar, (2010) Do cross-subsidies hinder telecommunications market entry?, info, VOL. 13 NO. 2 2011, pp. 85-96 17. John Luiz, (2010) "Infrastructure investment and its performance in Africa over the course of the twentieth century", International Journal of Social Economics, Vol. 37 Iss: 7, pp.512 536 18. Heather E Hudson, (2010) Defining Universal Service Funds, Inter media, Vol 38, issue 1

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